Royal Caribbean announces $3.3 billion Bond offering

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Royal Caribbean announces $3.3 billion Bond offering

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On 12th May 2020, Royal Caribbean cruises Ltd. (NYSE: RCL) announced $ 3.3 billion bond offering due in 2023 and 2025, keeping 28 of its ship and material intellectual property as collateral. Company did not specify which ships it will pledge for the debt offering. As on 31st December company had vessels whose total book value was $ 22.7, including largest cruise ship – Symphony of the Seas.

Royal Caribbean in its press release claims to use these bonds to repay its $2.35 billion 364-day senior secured term loan agreement with Morgan Stanley and remaining amount will be used for general corporate purpose which may include payment of additional debt, if required. Company will start issuing this bond from 19th May 2020.

Citing challenges due to COVID-19, company has delayed its Q1 2020 earning report by May. Company was supposed to announce its first quarter result on 11th May 2020 but will now delay it by 45 days as per provision allowed by SEC. Company claims that due to measures taken for spread of COVID-19, limited access was available to corporate office and areas where company operate, so internal quarterly review and evaluation of crisis on companies financial statement could not be completed.

Although, Royal Caribbean on 13th May 2020 announced Preliminary first quarter result for this year. Financial Highlights from this result are:

  1. Sales of the company is down by 17% on the first quarter of 2020.
  2. Net loss for Q1 2020 is $ 1.4 billion compared to $ 250 profit earned in Q1 2019.
  3. Company claims the profit declined by $ 453 million due to COVID-19.
  4. Total cruise operating expense decreased from $ 97.1 million to $ 1.5 billion.
  5. Preliminary Gross Cruise Costs has increased by 3.7%  and net cruise cost by 9.5% in first quarter of 2020.
  6. Gross yield was flat and net yield has decreased by 1.6% in first quarter of 2020.
  7. EBITDA in first quarter of 2020 has decreased by $1,633.2 million to $ ($1,029.2) million, compared to $604.0 million in same period of 2019.
  8. Total revenue in this quarter has declined by $ 407 million or 16% to $ 2 billion.
  9. Finalizing Impairment Charges preliminary estimated to be between $1.0 Billion to $1.3 Billion.
Source: Business Quant

All the cruise business in US have suffered losses as shutdown orders has been issued by the government. Royal Caribbean has suspended its operation from 13th March 2020 to 11th June 2020. Company has also lay off 26% of its workforce which includes 1300 of employees due to increase in losses.

On 13th May 2020, Michael Bayley, President and Chief Executive Officer of Royal Caribbean had conducted webinar with travel agents. In the webinar he said “Internal research is showing guests are more interested in traveling again, and bookings improving, particularly for 2021. There’s going to be a point in time in the future, I think, when all of these things cross and it’ll be the perfect moment to announce that we’ll be returning to service. I really don’t know when that will be”.

As operation has been shut down, company is using different sources for its financing. On 23th March 2020, Royal Caribbean announced $2.2 billion secured term loan facility which will be used for purchasing the ships next year. On 7th May 2020 company amended $1.55 billion unsecured revolving credit facility due in 2022 with Nordea Bank New York Branch, $1.925 billion unsecured revolving credit facility due in 2024 with The Bank of Nova Scotia, $1.0 billion unsecured three-year term loan agreement.

Company now has debt of more then $ 4 billion and has 2.9 billion liquidity as on 30th April 2020, company is spending between $250 million and $275 million each month while its ships remain docked. This year Royal Caribbean share has declined by 72% and when company announced 3.3 billion bonds offer its share declined by 3.2%. As operation remains shutdown and debt increase, share prices may pledge in future.

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